Talk about crazy coincidence! I just finished a piece arguing that Sumner always give Keynes short thrift but basically-even by his own admission-knows little about Keynes and also mentioned Sumner's argument with Mike Kimel last year about the impact of FDR's gold buying scheme on the recovery and lo and behold, Sumner wrote a piece about Clark Johnson-who basically shares his view.
Here Sumner quotes Johnson:
"So here we are. We saw an historically sharp recovery for four months during 1933, driven almost entirely by a decision to break the straightjacket imposed on monetary policy by the international gold standard. Keynes had previously been an able critic of the gold standard, for example in the Tract on Monetary Reform (1923) and then in several chapters in the Treatise. The 1933 recovery was then stalled by micro-policies [the NIRA] of which he was explicitly critical. Yet Keynes seemed to dismiss this entire episode in his call a few months later for fiscal stimulus."
Clark's post-the first of a four part series-is actually at Lars Christensen
The name of the post by Clark-part of his manuscript is "Keynes: Evidence For Monetary Policy Ineffectiveness?"
Clark first considers the historical record of what we know about Keynes' views on monetary policy. He says that since he said little about monetary policy in General Theory we have to look at previous work by him -his Tract on Monetary Reform and his two part Treatise on Money. He criticizes Keynes' explanation for British deflation in the 1890:
"An unexpected embrace of fiscal activism comes in the Treatise discussion of the deflation of the early 1890s, where Keynes argued that the Bank of England’s gold reserves were abundant and credit was easy. But prices in Britain and the world nevertheless went into decline, which undermined profit and investment and reduced employment. He wrote:
"I consider, therefore, that the history of this period [1890-1896] is a perfect example of a prolonged Commodity Deflation – developing and persisting in spite of a great increase in the total volume of Bank-Money. There has been no other case where one can trace so clearly the effects of a prolonged withdrawal of entrepreneurs from undertaking the production of new fixed capital on a scale commensurate with current savings."
"Keynes then concluded (anticipating his arguments a few years later, including in the General Theory,) that monetary expansion does not always work, and that there might therefore be a role for public investment projects to boost demand."
"Keynes’ discussion of the 1890s misses the point. Britain in the late nineteenth century was part of an open world economy, with easy movement of goods, people, and especially capital. Keynes neglected to mention that system-wide demand for gold rose much more than the supply from the 1870s through the 1890s as nearly two dozen countries adopted or re-adopted the gold standard, and hence needed to accumulate reserves. Indeed, demand drove the commodity-exchange value of gold to the highest level it was to reach in four centuries of record-keeping — the flip-side of commodity price deflation. The commodity price decline reduced profits and chilled investment demand; but commodity prices were determined in international markets, not in Britain."
"While demand for gold was surging, the world’s monetary gold supply in the mid-1890s was at its lowest point it was ever to reach relative to its 1800-1920 trend line. As the mines in the South African Rand cranked up production in the 1890s, relative gold supply and commodity prices increased, nearly in tandem after 1896 – thus ending the Commodity Deflation, and initiating a gentle inflation. A growing money stock affected not just the supply of credit (as reflected in a declining interest rate), but also the demand for it. A result was nearly two decades of economic growth in all of the industrial powers, which was sadly interrupted by the First World War."
I wont attempt a point by point rebuttal of Clark here-for now. However, I will note that obviously Keynes was not ignorant of monetary policy, far from it. He had spoken against the gold standard in the 20s though Clark seems to suggest that Keynes "forgot" his own criticism Indeed he was the architect of what remains the most successful international monetary system in history. Interestingly Sumner at some point admitted that BW was better but doesn't wonder if the international monetary system of BW wasn't behind this-of which we owe Keynes.
Indeed, if the euro system were based on Keynes premises it wouldn't be such a train wreck.